Containerboard Characteristics

Date : 20/11/2009

In order to proper manage the containerboard business, one has to understand the fundamental characteristic of the industry. Based on market findings, many believed that the CT industry has the following characteristics.

a) A commodity product

CT products is hardly differentiated as it is common and freely traded across all nations in the world. As such the supply and demand depends very much on the world economic trend. The product itself can be applied in any countries with minimum impact to the quality of boxes.

In view of its nature of products, the prices of CT is highly sensitive and as global demand increases box plants or packaging will be price taker. However, in global downturn the CT mills will be the price taker instead.

As such, one has to be prepaped himself to weather this changes.

b) Cyclicality

One cannot deny that this industry is subject to cyclical ups and downs. It is closely tracked to the economic cycles. The recent global financial crisis sees major mills struggle to pull thru. The huge closed down of manufacturing factories in China has an immediate impact to the larger CT mills in China. Some of these large mills were either shelved their expansion plan or curtail the production output.

The key determinant of such variation or cyclicality in demand of CT paper is largely affected by the closure of mills, newly built mills and buying pattern of wholesalers. However, such variation in demand trend is predictable but the impact to volume of sales is difficult to predict.

Recovered paper supply has become one of the new determinants of CT Industry cyclicality as the supply and demand of recovered paper has affected the prices and output.

As recovered paper has a direct correlation with public consumption and consumer spending, the generation of recovered paper largely depend on economic trend. The recent slowdown in consumer spending in US, Europe and Japan has affected the supply of recovered paper. The impact has caused many mills to stop production due to insufficient recovered paper which is the main component of CT products.

One will never deny that recovered has become one of the determinants of the industry and form a major component to the industry cyclicality

Nevertheless, one has to adapt and be aware of the nature of the industry. One must be able to cope during downturn and make all he can during an upturn ie a commodity product.

c) Capital intensity

Historically, a CT paper mill is considered as capital intensive industry. However, this barrier has weaken over the last 10 years as there are many new machines supplier in Asia with collaboration with western machine producers who are able to manufacture much cheaper machines. Most of these producers are in China, Japan, Korea and Taiwan. Nevertheless, the cost of building a new machine is still substantial.

In order to be successful, a CT player must prepare itself to weather the above changes and must has a reasonable strategy to sustain its profitability.